global auto report 2009

A cyclical recovery in global auto sales began in the spring of 2009 and will gain momentum in the New Year. The emerging markets of

China, India and Brazil will lead the way, but mature markets will also post gains in 2010, led by a double-digit advance in the key U.S. market.

Global car sales will continue to be buoyed by the ongoing massive and synchronized monetary and fiscal stimulus, which has generated a global economic recovery, including improving auto lending across the globe. In fact, we estimate that auto loans across major markets bottomed in the first quarter of 2009 and have improved consistently alongside a thawing in global credit markets and falling interest rates. For example, auto loan rates in the United States are currently at 4% — less than half the level prevailing in late 2008. Improving access to credit and a return to 3% growth in the global economy will enable 2010 car sales to recapture half of the ground lost over the past two years, setting the stage for record volumes in 2011.

EMERGING MARKETS OUTPERFORM

China became the world’s largest auto market in 2009, surpassing purchases in the United States. Car sales in China surged by more than 40% to 7.3 million units in 2009, driven by government incentives including a reduction in the sales tax to 5% from 10% for small fuel-efficient vehicles with engines less than 1.6 litres. (If trucks and buses are included, purchases in China exceeded 13 million vehicles compared with about 10.5 million in the United States.) In early December, China announced that the sales tax for fuel-efficient models would increase to 7.5% through the end of 2010, but that incentives to scrap older vehicles will jump to Rmb18,000 (US$2,600) from the current Rmb5,000. These measures will help lift car sales in China by 20% to nearly 9 million units in 2010, enabling it to widen its lead over the U.S.

Purchases in China will also continue to be buoyed by rising household disposable income and a low penetration rate. China has less than 40 vehicles per 1,000 people compared with a G7 average of more than 600 vehicles. Per capita incomes have been advancing by 9% per annum over the past decade, and are now at US$3,600 — a level that typically leads to an extended period of rapid growth in car sales. For example, purchases in South Korea expanded by 27% per annum from 1980 through the mid-1990s — roughly 4 times the pace of per capita income growth — until incomes reached US$10,000 per person.

With the exception of Russia, where car sales remained in hibernation throughout 2009, purchases in the other BRIC nations — India and Brazil — climbed to record highs in 2009, and will post solid gains in 2010, as economic growth in both countries exceeds 5% in the coming year. Sales gains are also expected to resume in Russia in the New Year, as the Kremlin launches its own ‘cash for clunkers’ program. Starting in January, the government will pay 50,000 rubles (US$1,660) to new car buyers who replace their vehicles that are at least 10 years old with new Russian-made models. We expect car sales in Russia to approach 1.8 million units in 2010, after slumping more than 40% this year to 1.6 million.

In India, car sales climbed to a record 1.4 million units in 2009, with gains accelerating sharply in the second half of 2009, as GDP growth strengthened to the fastest pace since early 2008, and credit availability improved. Historically, about 80% of overall vehicle purchases in India require financing. However, the global credit crunch led to a significant reduction in auto loans through early 2009. Auto financing has begun to flow again in recent months, and combined with falling interest rates, now accounts for about 75% of overall volumes in India. Prospects for strong sales gains have induced foreign automakers

December 29, 2009 Global Economic Research

Carlos Gomes (416) 866-4735 [email protected]

Global Auto Report is available on: www.scotiabank.com, Bloomberg at SCOE and Reuters at SM1C

Scotia Economics

Scotia Plaza 40 King Street West, 63rd Floor Toronto, Ontario Canada M5H 1H1 Tel: (416) 866-6253 Fax: (416) 866-2829 Email: [email protected]

This Report is prepared by Scotia Economics as a resource for the clients of Scotiabank and Scotia Capital. While the information is from sources believed reliable, neither the information nor the forecast shall be taken as a representation for which The Bank of Nova Scotia or Scotia Capital Inc. or any of their employees incur any responsibility.

On The Road To Recovery In 2010 — Double-digit gains in emerging markets and the U.S. will drive a 5% increase

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00 01 02 03 04 05 06 07 08 09 102

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United Statesmillions of units

BRIC*

Western Europe

forecast

* Brazil, Russia, India and China.

Emerging Markets Drive Global Sales Recovery

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Global Economic Research December 29, 2009

such as General Motors, Volkswagen and Toyota to increase their presence in India. In particular, Volkswagen recently acquired a 20% stake in Suzuki which, through its Maruti Suzuki subsidiary, garners nearly 50% of the car market.

India’s middle class is conservatively estimated at roughly 170 million — half of the entire U.S. population. Meanwhile, India’s vehicle penetration rate is among the lowest in the world given its strong per capita income growth — currently in excess of 6% per annum, second only to China. Improving credit availability, new model launches — 10 new cars will by unveiled at the upcoming New Delhi Auto Expo — and favourable demographics will sustain a double-digit gain in 2010. India has one of the youngest populations, with half of its 1.2 million people less than 25 years old, compared with 42% in Brazil, 36% in China and less than 30% in the developed nations.

Rapid car sales gains have also resumed in Brazil, with unemployment receding alongside the government’s deployment of stimulative fiscal and monetary policies to boost credit and employment growth. The Brazilian economy has been consistently adding jobs since early 2009, creating 1.2 million new positions through October. The government intends to create nearly 2 million new jobs in 2010. Credit growth is expanding by 15% y/y, while loan delinquencies have been on a downward trend since March 2009. These developments will help lift car sales in Brazil to 2.7 million units in 2010, from a record 2.5 million this year.

REPLACEMENT DEMAND RETURNS TO NORTH AMERICA

Vehicle purchases in the United States have reversed the downward sales trend, with volumes advancing above a year earlier since August alongside a nascent economic recovery. Going forward, purchases will be bolstered by rising incomes, improved pent-up demand and record new vehicle affordability.

Income from private sector employment has been advancing since April 2009, and unemployment insurance claims are now at the lowest since September 2008 — just prior to the collapse of Lehman Bros. Strengthening used car prices — currently 19% above a year earlier — will also encourage some households to replace their aging vehicle. The median age of the U.S. vehicle fleet is a record 9.4 years, with nearly half of the 250 million cars & trucks on the road at least 10 years old.

Vehicle scrappage is even a more important driver of vehicle sales in Canada, and will underpin purchases of 1.53 million units in 2010, up from 1.45 million this year. On average, 7% of the Canadian fleet is replaced each year. However, the scrappage rate slumped to less than 6% in 2009, as the global economic downturn prompted Canadians to tighten their wallets and continue to drive their aging vehicles. An improving economic outlook has recently lifted the confidence of Canadian households more than 50% above the late-2008 low, prompting many to begin returning to auto dealerships.

Purchases in Western Europe posted a stronger-than-expected performance in the second half of 2009, supported by government scrappage programs. However, the German incentive program expired in early September and the plans of the French and Italian governments will only boost volumes through early 2010. The French plan requires orders for new cars to be placed by the end of 2009, while the Italian scheme has been extended up to 100,000 vehicles or €2 billion, whichever comes first. Households normally account for about half of overall car sales across Western Europe, but government scrappage schemes lifted their share to 63% in 2009. As a result, we expect car sales in Western Europe to pull back by about 8% in 2010 to 12.3 million units, despite a modest improvement in economic activity.

International Car Sales Outlook

1990-99 2000 2001-07 2008 2009e 2010f

TOTAL SALES 39.20 46.64 49.53 52.17 49.96 52.73 North America* 16.36 19.77 19.36 15.85 12.57 13.88 Canada 1.27 1.55 1.61 1.64 1.45 1.53 United States 14.55 17.35 16.71 13.19 10.30 11.50 Mexico 0.54 0.87 1.04 1.02 0.82 0.85

Western Europe 13.11 14.75 14.57 13.54 13.40 12.33 Germ any 3.57 3.38 3.29 3.09 3.71 3.15

Eastern Europe 1.18 2.38 2.54 4.01 3.21 3.42 Russ ia 0.78 1.03 1.42 2.73 1.64 1.79

Asia 6.91 7.85 10.82 15.07 16.86 18.84 China 0.33 0.61 2.56 5.04 7.31 8.77 India 0.31 0.60 0.81 1.20 1.44 1.59

South America 1.64 1.89 2.24 3.70 3.92 4.26 Brazil 0.94 1.17 1.40 2.23 2.46 2.71 *Includes light trucks.

(m illions of units)

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Canada/U.S. Motor Vehicle Sales Outlook

Vehicle Sales Outlook By Province*

1991-05 2006-07 2008 2010fAverage Jan-Oct ** Annual e

CANADA 1,398 1,635 1,642 1,449 1,450 1,525 Cars 797 861 898 741 745 775 Dom es tic 583 562 558 421 424 450 Transplants 178 280 305 261 260 270 Im ports 214 299 340 320 321 325 Light Trucks 601 774 744 708 705 750

UNITED STATES 15.5 16.3 13.2 10.3 10.3 11.5 Cars 8.3 7.7 6.8 5.3 5.3 5.8 Light Trucks 7.2 8.6 6.4 5.0 5.0 5.7

NORTH AMERICAN PRODUCTION* 15.58 15.65 12.90 8.53 8.53 11.10 CANADA 2.50 2.57 2.08 1.50 1.43 1.90 UNITED STATES 11.67 11.01 8.68 5.53 5.60 7.20 MEXICO 1.41 2.07 2.14 1.50 1.50 2.00 *Includes transplants; light, medium and heavy trucks. **U.S. sales and North American production to November.

(m illions of units, annualized)

(m illions of units, annualized)

(thousands of units, annualized)

2009

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7980 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10200

300

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Ontario

Quebec

Includes cars and trucks (light, medium and heavy).Shaded bars indicate U.S. recession periods.

thousands of units

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7780 82 84 86 88 90 92 94 96 98 00 02 04 06 08 1050

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British Columbia

Atlantic

thousands of units

Alberta

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1994-05 2006-07 2008 2010fAverage Jan-Oct Annual e

CANADA 1,446 1,635 1,642 1,449 1,450 1,525

ATLANTIC 102 114 127 112 112 116 CENTRAL 936 999 1,010 923 924 965 Quebec 366 402 430 387 388 407 Ontario 570 597 580 536 536 558

WEST 408 522 505 414 414 444 Manitoba 42 44 46 43 43 45 Saskatchewan 36 41 48 45 46 48 Alberta 166 243 232 179 180 196 British Colum bia 164 194 179 147 145 155 *Includes cars and light trucks.

(thousands of units, annual rates)

2009

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Auto Market Share By Manufacturer — Canada*

Truck Market Share By Manufacturer — Canada*

Units % of Total Units % of Total Units % of Total Units % of Total

TOTAL 849.2 100.0 697.4 100.0 51.2 100.0 50.7 100.0 Big Three 266.5 31.5 169.8 24.4 15.0 29.3 11.1 22.0 General Motors 167.0 19.7 90.7 13.0 8.4 16.4 5.7 11.4 Ford 47.9 5.7 47.7 6.9 3.4 6.7 3.7 7.3 Chrys ler 51.6 6.1 31.4 4.5 3.2 6.2 1.7 3.3

Japanese 420.5 49.5 346.4 49.7 24.0 46.8 25.8 50.9 Honda 114.1 13.4 88.1 12.7 6.1 12.0 5.9 11.7 Toyota 153.9 18.1 117.1 16.8 8.3 16.2 9.3 18.4 Nissan 53.4 6.3 52.8 7.6 3.2 6.2 3.9 7.7 Mazda 67.2 7.9 59.8 8.6 4.1 7.9 4.6 9.1 Suzuki 9.2 1.1 7.7 1.1 0.7 1.4 0.4 0.7 Subaru 11.8 1.4 10.9 1.6 0.9 1.8 1.0 2.0 Volkswagen 34.3 4.0 30.0 4.3 2.5 4.9 2.6 5.1 Hyundai 52.2 6.1 66.4 9.5 3.7 7.2 4.2 8.3 BMW 20.3 2.4 20.9 3.0 1.7 3.3 1.7 3.4 Mercedes-Benz 18.1 2.1 17.8 2.6 1.3 2.6 1.4 2.7 Other 37.3 4.4 46.1 6.5 3.0 5.9 3.9 7.6 *Source: Dealer sales from Motor Vehicle Manufacturers’ Association; latest data from The Globe and Mail.

Jan to Nov Nov NovJan to Nov

(thousands of units, not seasonally adjusted)

2008 2009 2008 2009

Units % of Total Units % of Total Units % ot Total Units % of Total

TOTAL 727.3 100.0 671.5 100.0 56.4 100.0 52.3 100.0 Big Three 478.9 65.9 422.1 62.9 38.2 67.7 31.3 59.9 General Motors 171.0 23.5 144.5 21.5 13.1 23.2 9.3 17.8 Ford 148.8 20.5 159.6 23.8 12.7 22.6 12.2 23.4 Chrys ler 159.1 21.9 118.0 17.6 12.4 21.9 9.8 18.7

Other Dom estic 34.0 4.6 19.5 2.9 2.3 4.1 1.4 2.6

Japanese 156.1 21.5 154.6 23.0 11.1 19.6 13.2 25.3 Honda 46.7 6.4 39.5 5.9 3.1 5.5 3.0 5.7 Toyota 60.5 8.3 70.3 10.5 4.5 8.0 6.8 13.0 Nissan 25.5 3.5 21.1 3.1 1.8 3.1 1.4 2.8 Mazda 13.2 1.8 9.6 1.4 1.0 1.7 0.5 1.0 Suzuki 3.5 0.5 3.9 0.6 0.2 0.4 0.3 0.7 Subaru 6.6 0.9 10.2 1.5 0.5 1.0 1.2 2.3 Hyundai 24.7 3.4 31.7 4.7 1.9 3.4 2.8 5.4

Other Im ports 33.6 4.6 43.6 6.5 2.9 5.2 3.6 6.8 LIGHT TRUCKS 693.5 95.3 653.2 97.3 54.1 95.9 51.2 98.1 *Source: Dealer sales from Motor Vehicle Manufacturers’ Association; latest data from The Globe and Mail.

Jan to Nov Nov NovJan to Nov


2008 2009 2008 2009

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Auto Sales By Province

Truck Sales By Province*

2008 2009 2008 2009Jan to Oct Jan to Oct Oct Oct

CANADA 798.5 645.5 63.5 61.5 ATLANTIC 67.9 53.9 4.8 4.7 Newfoundland 15.4 12.6 1.1 1.0 Nova Scotia 29.4 23.5 2.0 2.1 New Brunswick 20.0 15.2 1.5 1.4 Prince Edward Is land 3.1 2.6 0.2 0.2 CENTRAL 535.6 449.6 43.2 43.2 Quebec 255.5 218.4 19.9 20.0 Ontario 280.1 231.2 23.3 23.2 WEST 195.0 142.0 15.5 13.6 Manitoba 19.1 14.9 1.6 1.5 Saskatchewan 15.6 12.6 1.4 1.2 Alberta 78.0 53.5 6.3 5.2 British Colum bia 82.3 61.0 6.2 5.7


2008 2009 2008 2009Jan to Oct Jan to Oct Oct Oct

CANADA 670.4 622.4 62.5 62.2 ATLANTIC 46.9 48.0 4.4 4.4 Newfoundland 12.7 12.7 1.2 1.3 Nova Scotia 17.2 18.0 1.6 1.5 New Brunswick 15.3 15.4 1.4 1.4 Prince Edward Is land 1.7 1.9 0.2 0.2 CENTRAL 370.1 354.8 34.4 34.4 Quebec 133.5 126.1 12.1 11.9 Ontario 236.6 228.7 22.3 22.5 WEST 253.4 219.6 23.7 23.4 Manitoba 22.4 22.7 2.2 2.3 Saskatchewan 26.7 25.9 2.6 3.0 Alberta 127.6 104.1 12.3 11.0 British Colum bia 76.7 66.9 6.6 7.1 *Light, medium and heavy trucks.


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Canada — Motor Vehicle Production

Canada — World Auto Trade Balances

Canadian Motor Vehicle Production*

2008 2009 2008 2009Jan to Nov Jan to Nov Nov Nov

TOTAL 1,973.1 1,343.7 162.5 161.8 CAR 1,129.5 744.2 105.7 82.2 Chrys ler 202.6 105.4 17.3 9.2 Ford 106.8 72.8 9.9 7.1 GM 334.1 195.8 31.4 22.2 Honda 283.7 210.1 29.4 23.3 Toyota 202.3 160.1 17.7 20.4

TRUCKS** 843.6 599.5 56.8 79.6 CAMI (GM/Suzuki) 119.1 88.4 2.9 18.4 Chrys ler 251.1 174.4 25.4 25.1 Ford 190.5 139.7 12.0 18.9 GM 100.0 27.1 4.2 0.0 Honda 78.7 28.9 3.2 2.2 Toyota 71.3 130.2 6.7 14.5 Others 32.9 10.8 2.4 0.5 *Production data from Ward’s Automotive Reports. **Light, medium and heavy trucks.


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Cars

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50billions of dollars

Assembled vehicles

Total

Parts

2009 data are January-October annualized.

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Scotiabank Car Price Indicators — Canada

Scotiabank Car Price Indicators — Canada

Scotiabank Car Price Indicators — United States

New & Used Car Prices

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CPI

New

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Consumer price indices for new and used cars.Shaded areas indicate recession periods.

Used

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year-over-year per cent change

CPI

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Retail Auto Dealer Bankruptcies

Canadian Corporate Financial Performance

Motor Vehicle Dealers and Repair Shops

Net Incom e Pre-Tax Inventory Interes t Debt/ Return onAfter Tax Profit Turnover Coverage Equity Shareholders($ m il) Margin (%) Ratio Ratio Ratio Equity (%)

Annual 1996 141 0.63 7.05 1.98 1.79 2.451997 256 0.80 6.82 2.46 1.97 4.261998 217 0.76 6.33 2.07 2.25 3.911999 487 0.82 6.83 2.31 2.41 9.582000 400 0.75 6.79 2.10 2.02 6.462001 521 0.75 7.06 2.13 1.98 8.372002 773 1.02 7.48 3.09 2.04 11.282003 594 0.91 5.30 2.65 2.91 10.142004 571 0.69 4.98 2.25 3.17 10.492005 799 0.93 5.35 2.55 2.74 12.902006 942 1.20 5.16 2.64 2.75 14.372007 1089 1.38 5.05 3.22 2.54 15.082008 808 1.10 5.00 2.90 2.39 10.62

Quarterly at annual rates2008Q3 928 1.24 5.08 3.14 2.35 11.88

Q4 372 0.63 4.70 1.99 2.32 4.692009Q1 496 0.86 4.33 2.69 2.36 6.42

Q2 1084 1.29 5.53 3.67 2.24 13.92 Q3 1012 1.36 5.12 3.94 2.09 12.35

Average (89-08) 524 1.00 6.37 2.41 2.44 9.56Low (89-08) -68 0.10 4.59 1.10 3.57 -1.20 Definition of Ratios: Interest Coverage Ratio: (pre-tax income and interest payments)/(interest payments) Pre-tax Prof it Margin: pre-tax income/sales Debt/Equity Ratio: (short-term and long-term debt)/total equityInventory Turnover Ratio: sales/inventory Return of Shareholders’ Equity: af ter-tax income/total equity

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num ber of bankruptcies

2009

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global auto report 2009

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